Week 09

Week 09 ยท Introduction to Marketing

Supply Chain and Distribution Channels (The Third P)

Davood Wadi, PhD

Welcome to Week 9.

Today we explore the Third P: Place.

We will unpack how products move from production to consumption.

A factory on the left marked production, a truck and a shopfront between, and a person on the right marked consumption. An arrow runs the whole width.PRODUCTIONCONSUMPTIONHOW PRODUCTS MOVE

Module 1: The Nature of Marketing Channels

A marketing channel is a set of interdependent organizations.

Four chain links drawn overlapping so none can move without the others. A bracket beneath names them a set of interdependent organizations.INTERDEPENDENT ORGANIZATIONSA SET

These organizations help make a product available for use or consumption.

Above: the product finished at the plant, with the buyer far off across a dashed gap and nothing joining them. Below: the same product on a shelf the buyer is standing at, reaching for it.MADEA BUYERTHESE ORGANIZATIONSMADE AVAILABLE FOR USE

They bridge the gap between producers and users in terms of time, place, and possession.

A producer stands on the left bank and a user on the right bank, with a gap between them. A channel is drawn as a bridge across the gap, carried on three piers labelled time, place and possession.PRODUCERSUSERSTHE GAPTHE MARKETING CHANNEL BRIDGESTIMEmade now, wanted laterPLACEmade here, wanted therePOSSESSIONowned by one, wanted by another

The Value Delivery Network

Marketing channels are part of a larger value delivery network.

A wide outlined band holding four parties. The marketing channel is one boxed group inside it, with suppliers standing before it and customers after it, so the band is visibly larger than the channel.A LARGER VALUE DELIVERY NETWORKSUPPLIERSMARKETING CHANNELSCUSTOMERSTHE CHANNEL IS ONE PART OF IT

This network includes the company, suppliers, distributors, and customers.

Four members of the value delivery network in a row: suppliers, the company, distributors and customers, each joined to the next by a two-headed partnering arrow.SUPPLIERSTHE COMPANYDISTRIBUTORSCUSTOMERSEVERYONE PARTNERSTHIS NETWORK INCLUDES

Everyone partners to improve the performance of the entire system.

Four narrow bars, one per partner, standing under a single wide bar. The wide bar is the performance of the entire system, and it is lifted higher than any partner reaches alone.EACH ON ITS OWNTHE ENTIRE SYSTEMIMPROVE
Knowledge Check

A grocery chain, the bakery that supplies it, the distributor that carries the bread, and the shoppers who buy it all share their forecasts so that fewer loaves are wasted. What is the larger whole they form?

How Channels Add Value

Channel members at the hub in the centre. Spokes run out to producers above and consumers below, each spoke a two-headed arrow, because information flows both ways through the channel.CHANNELMEMBERSPRODUCERSPRODUCERSCONSUMERSCONSUMERSINFORMATION FLOWS BOTH WAYS
Above, the firm on its own runs a line to each of three buyers. Below, the same firm runs one line to an intermediary, which runs a line to each of sixteen.ON ITS OWNTHROUGH THEMMORE THAN IT CAN ACHIEVE ALONE

Intermediaries offer the firm more than it can achieve on its own.

They provide contacts, experience, specialization, and scale of operation.

Four tiles, each drawing one thing an intermediary brings: a web of contacts, a stack of years of experience, a single sharpened specialization, and a scale of operation drawn as many crates.CONTACTSEXPERIENCESPECIALIZATIONSCALE OF OPERATIONWHAT INTERMEDIARIES OFFER THE FIRM

They transform the assortments of products made by producers into the assortments wanted by consumers.

On the left, three deep stacks: each producer makes many of one item. In the middle, a sorting table. On the right, three shallow baskets, each holding one of every item: the assortment a consumer wants.MADE BY PRODUCERSmany of one thingTHEYTRANSFORMTHE ASSORTMENTSWANTED BY CONSUMERSone of each thing

Key Functions of Intermediaries

Information gathering about consumers and competitors.

Two groups, one of consumers and one of competitors, each under its own magnifier. What both lenses find is collected into one report.CONSUMERSCOMPETITORSINFORMATION GATHERING

Promotion development and dissemination about an offer.

An offer is drafted as a sheet, then carried outward by a megaphone whose sound reaches a spread of listeners.AN OFFERDEVELOPMENT AND DISSEMINATION
Three offers on the left and three prospective buyers on the right, each spaced clear of the next. A line runs from each offer to the buyer whose need it meets.OFFERSPROSPECTIVE BUYERSMATCHING OFFERS TO BUYER NEEDS

Contacting prospective buyers and matching offers to meet buyer needs.

Additional Functions

Two parties face each other across a table holding price and terms. Once they agree, the title to the goods passes from one side to the other.PRICEAND OTHER TERMSOWNERSHIPSO THAT IT CAN BE TRANSFERRED

Negotiating price and other terms so that ownership can be transferred.

A warehouse, a crate, a truck and a shopfront standing along one road, with an arrow over them: the goods themselves being moved from one end to the other.GOODS MOVEPHYSICAL DISTRIBUTION

Physical distribution of goods.

Coins paid down to fund the channel's work, drawn as a beam the intermediary holds up while also carrying a block marked risk.FINANCINGCHANNEL WORKRISKSAND TAKING THE RISKS OF IT

Financing the channel work and taking risks of carrying out the channel work.

Channel Levels

A channel level is a layer of intermediaries that performs some work in bringing the product closer to the final buyer.

A ruled line from the producer to the final buyer. A single layer of intermediaries sits across it, and the distance still to travel is shorter after it than before.PRODUCERTHE FINAL BUYERA CHANNEL LEVELa layer of intermediariesCLOSER TO THE FINAL BUYERIT PERFORMS SOME OF THE WORK

The number of intermediary levels indicates the length of a channel.

Three channels stacked. The first has no intermediary between producer and buyer, the second has one, the third has two. A count on the right shows the number of levels, which is the length of the channel.THE NUMBER OF INTERMEDIARY LEVELSLENGTH0LEVEL1LEVELLEVEL2DIRECTMORE LEVELS, A LONGER CHANNEL

Direct marketing channels have no intermediary levels.

A producer joined straight to a buyer by one unbroken arrow. The space between them is empty and marked as having no intermediary levels.PRODUCERBUYERNO LEVELSDIRECT MARKETING CHANNEL

Indirect Marketing Channels

Indirect marketing channels contain one or more intermediary levels.

Three indirect channels stacked. The first passes through a retailer, the second through a wholesaler then a retailer, the third through a wholesaler, a jobber and a retailer.ONE OR MORE INTERMEDIARY LEVELSRETAILERWHOLESALERRETAILERWHOLESALERJOBBERRETAILERCOMMON LEVELS

Common levels include wholesalers, jobbers, and retailers.

More levels mean less control and greater channel complexity for the producer.

A plot with the number of levels along the bottom. One line falls as levels are added: the producer's control. The other rises: channel complexity.LESS CONTROLGREATER COMPLEXITYMORE LEVELS
Knowledge Check

Two producers sell the same snack. The first ships to shoppers from its own website. The second sells to a wholesaler, who sells to a retailer, who sells to shoppers. What is true of the second producer's channel?

Discussion: Direct vs. Indirect Channels

A new snack brand at a fork. The upper route goes straight to buyers through its own website. The lower route goes through a major grocery chain and reaches a much wider shelf.A NEW BRANDYOUR WEBSITEDIRECTLYA MAJOR GROCERY CHAIN

Discussion: If you were launching a new organic snack brand, would you sell directly through your website or pitch to a major grocery chain?

Module 2: Channel Behavior and Organization

Distribution channels are complex behavioral systems.

Three firms in a row, each drawn with the people inside it. Two-headed arrows run between the people across firm boundaries, because the channel is a system of interaction.A COMPLEX BEHAVIORAL SYSTEMCUSTOMERPEOPLE AND COMPANIES INTERACT

People and companies interact to accomplish individual, company, and channel goals.

Three nested rings. The innermost holds the individual's goals, the middle the company's, the outermost the channel's. All three are being pursued at once.INDIVIDUALCOMPANYCHANNELgoals, all at onceWHAT THE INTERACTION IS MEANT TO ACCOMPLISH

Success depends on how well the channel members work together.

Three channel members standing on one line, each with a hand on the same rope, pulling a load that is moving off to the right.ONE ROPE, ONE DIRECTIONHOW WELL THEY WORK TOGETHER

Channel Conflict

Channel conflict occurs when members disagree over goals, roles, and rewards.

Two channel members face each other. Between them sit three contested items: goals, roles and rewards. Each is struck through with a clash mark.MEMBERMEMBERGOALSwhere we are goingROLESwho does whatREWARDSwho gets whatMEMBERS DISAGREE

Horizontal conflict occurs among firms at the same level of the channel.

One producer above, feeding a row of three retailers on the same rung. The clash sits between two of those retailers, along the rung.THE SAME LEVEL OF THE CHANNELHORIZONTAL

Vertical conflict occurs between different levels of the same channel.

A single channel drawn as a column: producer at the top, wholesaler in the middle, retailer at the foot. The clashes sit on the links between the levels.PRODUCERWHOLESALERRETAILERONE CHANNELDIFFERENT LEVELS
Knowledge Check

Two dealerships that both sell the same carmaker's vehicles argue over which of them is allowed to advertise in the other's city. Which kind of channel conflict is this?

Conventional Distribution Systems

Consist of one or more independent producers, wholesalers, and retailers.

Each is a separate business seeking to maximize its own profits.

No channel member has much control over the other members.

Three independent businesses standing apart, each in its own box with its own profit arrow rising. The links between them are broken, so no one controls the others.ITS OWNPROFITSPRODUCERSa separate businessITS OWNPROFITSWHOLESALERSa separate businessITS OWNPROFITSRETAILERSa separate businessNO MEMBER HAS MUCH CONTROL OVER THE OTHERS

Vertical Marketing Systems (VMS)

A VMS consists of producers, wholesalers, and retailers acting as a unified system.

Producer, wholesaler and retailer set as three descending steps, with the flow cascading from each to the next. A single outline is drawn around all three: they act as one system.ACTING AS A UNIFIED SYSTEMPRODUCERWHOLESALERRETAILERA VERTICAL MARKETING SYSTEM

One channel member owns the others, has contracts with them, or wields so much power they all cooperate.

Three panels showing how one channel member can hold the rest together: by owning them, by contracting with them, or by being large enough that they all cooperate.OWNS THE OTHERSHAS CONTRACTSWIELDS POWERSO THEY ALL COOPERATEONE CHANNEL MEMBER HOLDS THE REST

Designed to achieve channel economies and maximum impact.

Costs and impact for a channel of separate firms, then for a unified one. Moving to the unified system the cost bar falls and the impact bar rises.COSTSIMPACTCOSTSIMPACTSEPARATEUNIFIEDCHANNEL ECONOMIES AND MAXIMUM IMPACT

Types of Vertical Marketing Systems

Successive stages of production and distribution drawn inside one solid boundary marked single ownership.SINGLE OWNERSHIPSUCCESSIVE STAGES, INTEGRATED

Corporate VMS integrates successive stages of production and distribution under single ownership.

Three separately outlined firms at different levels of the channel, joined to one another below by two signed contracts.INDEPENDENTINDEPENDENTINDEPENDENTJOINING TOGETHER THROUGH CONTRACTS

Contractual VMS consists of independent firms at different levels joining together through contracts.

One party drawn far larger than the others. The smaller stages fall into line behind it, coordinated by its size and power rather than by ownership or contract.SIZEAND POWERCOORDINATES SUCCESSIVE STAGES

Administered VMS coordinates successive stages through the size and power of one of the parties.

Multichannel Distribution Systems

A single firm sets up two or more marketing channels to reach one or more customer segments.

A single firm on the left with three channels leaving it: a direct one, one through a retailer, and one through a wholesaler and retailer. They lead to two customer segments on the right.A SINGLE FIRMCUSTOMER SEGMENTCUSTOMER SEGMENTTWO OR MORE MARKETING CHANNELS
One outlined market holding four clusters of buyers. The clusters differ in size, in shape and in kind, and together they fill the whole frame.LARGE AND COMPLEX MARKETSWHERE THE ADVANTAGE LIES

Offers advantages for companies facing large and complex markets.

Expands sales and market coverage but can be harder to control and generate conflict.

On the left, market coverage grows from a small block to a large one and sales rise with it. On the right, two of the firm's own channels reach the same buyer and a clash appears where they overlap.SALES ANDMARKET COVERAGEEXPANDSHARDER TO CONTROL, AND CONFLICTWHAT IT BUYSWHAT IT COSTS

The Trend of Disintermediation

Disintermediation occurs when product and service producers cut out intermediaries.

The old chain runs producer, wholesaler, retailer, buyer. The two middle links are lifted out of the line and greyed. A new arrow runs straight from the producer to the final buyer.PRODUCERSFINAL BUYERSCUT OUTGOING DIRECTLY TO FINAL BUYERSDISINTERMEDIATION

This includes going directly to final buyers or displacing traditional resellers with new types of intermediaries.

A line from the producer to the buyer with one place on it. The traditional reseller that used to stand there is drawn faded and grey, lifted clear of the line; the place it left is now held by a new type of intermediary.THE TRADITIONAL RESELLERDISPLACEDA NEW TYPEA NEW TYPE OF INTERMEDIARY TAKES ITS PLACE
One event at the foot, splitting upward into two outcomes: an opportunity that rises and a strategic threat that falls.THE SAME TRENDOPPORTUNITIESTHREATSSTRATEGICBOTH, TO ESTABLISHED FIRMS

Presents both opportunities and strategic threats to established firms.

Knowledge Check

A furniture maker closes the dealer accounts it has sold through for years and begins taking orders only on its own website. Which trend does this show?

Discussion: Surviving Disintermediation

Programmes flow to viewers along two routes. The upper one passes through a cable provider. The lower one runs straight from the streaming service to the viewer, going around it.PROGRAMMESAND SERVICESCABLE PROVIDERSSTREAMING SERVICESVIEWERSBYPASSED

Discussion: As streaming services bypass traditional cable providers, how can cable companies adapt to remain relevant in the distribution channel?

Module 3: Retailing, Wholesaling, and Logistics

The chain from producer to consumer, with two bands drawn over it. Wholesaling covers the stretch that sells for resale or business use. Retailing covers the last stretch to the final consumer. A band beneath the whole chain is logistics.WHOLESALINGRETAILINGLOGISTICS MANAGEMENTALL THE ACTIVITIES INVOLVED

Retailing includes all activities involved in selling goods directly to final consumers.

Goods sold from a shopfront straight to a person who will use them: the final consumer.FINAL CONSUMERSDIRECTLYRETAILING

Wholesaling includes all activities involved in selling goods to those buying for resale or business use.

Goods sold from a warehouse to a shopfront that will resell them and to a factory that will use them in its business.RESALEBUSINESSUSEWHOLESALING

Logistics management ensures the efficient flow of materials and final goods.

Materials enter a plant on the left, final goods leave it on the right, and the line through it is drawn unbroken and even: the flow is managed to stay efficient.MATERIALSFINAL GOODSAN EFFICIENT FLOW

The Role of Retailing

Retailers connect brands with consumers in the final steps of the distribution process.

The distribution process as four steps. The last two are enclosed and lit: the retailer standing between the brand and the consumer.THE FINAL STEPSPRODUCERWHOLESALERRETAILERCONSUMERTHE BRANDTHE DISTRIBUTION PROCESS

Shopper marketing focuses the entire marketing process on turning shoppers into buyers at the point of sale.

The whole marketing process drawn as four streams converging on one point marked the point of sale. A shopper walks in on one side and leaves the other side as a buyer, carrying the goods.PRODUCTPRICEPLACEPROMOTIONTHE ENTIRE MARKETING PROCESSTHE POINTOF SALESHOPPERSBUYERSTURNING ONEINTO THE OTHER

Retailers must carefully define their target markets and positioning.

On the left, a target market cut out of a wider field of buyers. On the right, a position marked on a map of competing stores.TARGET MARKETSPOSITIONING

The Value of Wholesaling

Wholesalers add value by performing channel functions better or more cost effectively than producers.

The same channel function costed twice: once performed by the producer and once by the wholesaler. The wholesaler's bar is shorter and its quality mark higher.COST OFPERFORMING ITPRODUCERSWHOLESALERSMORE COST EFFECTIVELYTHE SAME CHANNEL FUNCTIONSWHOLESALERS ADD VALUE BY PERFORMING THEM BETTER

They help manufacturers reach many small customers at a low cost.

Above, a manufacturer runs a separate line to each of six small customers. Below, it runs one line to a wholesaler, which runs the six. The count of lines the manufacturer pays for falls from six to one.MANUFACTURERSSIX LINES TO KEEPMANUFACTURERSWHOLESALERSONE LINE, AT A LOW COSTREACHING MANY SMALL CUSTOMERS

They hold inventories, reducing inventory costs and risks to suppliers and customers.

A supplier on the left and a customer on the right, each holding only a little stock. Between them the wholesaler holds the tall stack, so the cost and the risk of carrying it sit with the wholesaler.SUPPLIERSREDUCEDTHEY HOLD INVENTORIESREDUCEDCUSTOMERSINVENTORY COSTS AND RISKS

Marketing Logistics

Marketing logistics involves planning, implementing, and controlling the physical flow of goods.

Planning, implementing and controlling drawn as three stages in a loop. Below them, the physical flow of goods they act on: a truck running from a plant to a store.PLANNINGIMPLEMENTINGCONTROLLINGTHE PHYSICAL FLOW OF GOODSWHAT LOGISTICS PLANS, IMPLEMENTS AND CONTROLS

Focuses on getting the right product to the right customer in the right place at the right time.

Four dials, one each for product, customer, place and time. All four pointers are lined up on the same mark, because delivery is only right when all four are right together.PRODUCTRIGHTCUSTOMERRIGHTPLACERIGHTTIMERIGHTALL FOUR, TOGETHER

Involves inbound distribution, outbound distribution, and reverse distribution.

The company as a box in the middle. Inbound distribution enters from the left, outbound distribution leaves to the right, and reverse distribution loops back from the customer along the bottom.THE COMPANYINBOUNDOUTBOUNDREVERSEMARKETING LOGISTICS INVOLVES ALL THREE

Supply Chain Management

Managing upstream and downstream value-added flows of materials, final goods, and related information.

A chain of four stages. A band above it shows value being added as materials and final goods move downstream. A dashed band below shows information moving upstream, back the other way.SUPPLIERSTHE COMPANYRESELLERSCUSTOMERSVALUE ADDEDDOWNSTREAM: MATERIALS AND FINAL GOODSUPSTREAM: RELATED INFORMATION

Aims to maximize customer service while minimizing distribution costs.

Two opposed arrows on one axis. Customer service is pushed to its maximum at the top. Distribution costs are pushed to their minimum at the bottom.CUSTOMERSERVICEMAXIMIZEDISTRIBUTIONCOSTSMINIMIZEONE DECISION, TWO DIRECTIONS

Major functions include warehousing, inventory management, transportation, and logistics information management.

Four tiles, one per major supply chain function: a warehouse, a stock level on a gauge, a truck on a road, and a screen of logistics information.WAREHOUSINGINVENTORY MANAGEMENTTRANSPORTATIONLOGISTICS INFORMATIONMAJOR FUNCTIONS

Third-Party Logistics (3PL)

Outsourcing logistics functions to third-party providers.

Three logistics functions lifted out of the company box on the left and set down inside a third-party provider's box on the right.THE COMPANYWAREHOUSINGINVENTORYTRANSPORTATIONOUTSOURCINGTHIRD-PARTY PROVIDERSWAREHOUSINGINVENTORYTRANSPORTATIONLOGISTICS FUNCTIONS

3PL providers can help companies save money, improve service, and focus on core competencies.

Three panels: a cost bar falling, a service bar rising, and the company's effort narrowed onto a single core.SAVE MONEYIMPROVE SERVICEFOCUS ON CORE COMPETENCIESWHAT 3PL PROVIDERS CAN HELP COMPANIES DO

They understand increasingly complex logistics environments.

A tangle of routes joining ten points, with no single clear path. One route through it is picked out in colour.INCREASINGLY COMPLEX LOGISTICS ENVIRONMENTS

Conclusion: Supply Chain and Distribution Channels

  1. Distribution channels are the critical link between producers and final consumers.

  2. Choosing the right channel structure balances control, coverage, and cost.

  3. Effective channel management and logistics create sustainable competitive advantages.